Q: Will working with credit card companies on debt pay-down plans affect credit? My husband is at a job on which he cannot have bad credit. We have to shut down our family business, but owe on some credit accounts. The credit company said they would report it as “closed with assistance,” but they could not tell me if that is a bad thing (lower score) on our report.
A: I would work very closely with the credit card companies to be sure that they don’t report that you are not paying on your cards as agreed.
To be honest, I don’t have much faith in what someone might have told you on the telephone. Get any promises in writing.
But, you really have two issues at play here.
First, closing the accounts could affect your credit scores because you still have debt left on the cards. When you close an account, it reduces your available credit, and that impacts your scores. What most affects your score when an account is closed is the existence of outstanding balances on other open accounts—not the closure of the account itself. The credit-scoring algorithm looks at the credit utilization rate for each active account and, separately, a person’s credit usage for several accounts together.
So, as long as you have outstanding balances, it’s not helpful to close the accounts. Try to keep them open for now.
Second, what you want to work on with the credit card companies is a debt payment plan in which they agree to report that you are “paying as agreed.” That’s the phasing you need. If they allow you to make lower payments, you need the card companies to continue to report you are paying on time per whatever agreement you come up with.
If the companies won’t agree to a debt plan, go to the Web site of the National Foundation for Credit Counseling and get a nonprofit credit counseling company to help you negotiate with them. Under these plans, you could get a break in fees, penalties or interest rates. But again, as part of any plan, be sure the credit card companies report that you are paying as agreed.